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The Barron's 500 is our annual salute to companies that have done the best job of growing their businesses. In some cases, growth owes largely to timely and well-executed acquisitions. In others, impressive organic growth has been buttressed by an improving economy.

No. 6-ranked
Intel,
INTC -0.25397329942784486%Intel Corp.U.S.: NasdaqUSD31.3801
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on the other hand, prospered as corporations opened their wallets again to spend on computers and servers, as fears of a second recession receded. In both cases, shareholders benefited from the resulting strength in revenue and cash-flow growth, on which companies in the Barron's 500 are judged. While there is no guarantee that such good performance will continue, landing at the top of our ranking, now in its 14th year, is an acknowledgment of a superb recent track record, and a bow to the managers who engineered it.

The Barron's 500 is a unique ranking of the largest publicly traded companies in the U.S. and Canada, as measured by sales in each company's latest fiscal year. Prepared by HOLT, a unit of Credit Suisse, it seeks to identify companies with superior financial performance. HOLT compares the 500 companies using three equally weighted measures: sales growth in the latest fiscal year, adjusted for divestitures; median three-year return on investment, based on a cash-flow calculation the firm calls CFROI, and the change in CFROI in the latest fiscal year relative to the three-year median. (For a detailed explanation, see below.)

Barron's 500 Methodolgy

The Barron's 500 is an exclusive ranking of the 500 largest publicly traded companies in the U.S. and Canada, as measured by sales in the latest fiscal year. The survey is prepared by HOLT, a unit of Credit Suisse, which grades and ranks all companies on the basis of three equally weighted measures: median three-year return on investment, based on a proprietary cash-flow metric called CFROI; the change in CFROI in the latest fiscal year relative to the three-year median, and sales growth in the latest fiscal year, adjusted for divestitures (and, in the case of cigarette companies, for taxes that are collected and remitted to the government.) HOLT's CFROI metric strips out the effects of inflation and adjusts for accounting distortions. For financial companies, the firm calculates cash-flow return on tangible equity. All data are based on the companies' latest reported fiscal year, which for most is 2011. Each company is graded in three categories. The top quintile gets an A, the bottom, an F. HOLT then calculates the total grade-point average, or GPA, for each company, with 4.0 the highest. Ties are broken using one-year CFROI relative to the three-year median. The Barron's 500 excludes companies restating financial data or operating under bankruptcy protection. To identify companies with especially cheap shares, Barron's asked FactSet to re-rank this year's list by price/earnings ratio, based on profit estimates for the current fiscal year. "Combing the Barron's 500 for Underpriced Shares" focuses on the 30 components with the lowest P/Es.

Ascending to the top of the list is no easy task. To receive an A this year, companies had to log sales growth of 22% in their latest fiscal year. For industrials, the maximum cash-flow return on investment was 15%. For financials, for which HOLT calculates cash-flow return on tangible equity, 12% was tops. Only four companies managed to earn straight A's in our latest ranking, half as many as in 2011.

Here is a closer look at some companies that rose to prominence on the list.

CF Industries Holdings

For CF Industries, 2011 was the year when everything went right. The price of nitrogen fertilizer, its main product, jumped 25%, and the cost of natural gas, one of its largest expenses, fell 30%. How convenient, then, that CF had purchased Terra in April 2010, for $4.7 billion. "We essentially doubled our size as a nitrogen producer, and we did it at the right time," says Stephen Wilson, chairman and CEO.

CF had nitrogen plants in Louisiana and Alberta, Canada, and Terra had plants in Ontario, Oklahoma, Mississippi and Iowa. The combined company boasts more production points, shorter shipping distances to clients, improved logistics, and better customer service. "It was an absolutely superb fit," says Wilson.

The deal made CF the largest nitrogen producer in North America and the second-largest in the world. Revenue jumped 54% last year, to $6 billion, and earnings per share surged 312% to $21.98. The company reported first-quarter profit Thursday, and that, too, impressed. Revenue rose 30% to $1.5 billion, compared with the year-earlier level, and earnings were up 42% to $5.54 a share.

CF quadrupled its dividend last August to $1.60 a share, for a yield of 0.8%. At the same time, it announced a $1.5 billion stock buyback, and a plan to invest up to $1.5 billion to improve and expand its factories.

At a recent $186, CF shares are up 43% in the past year and almost 140% over two years, although they fell about 7% Friday on fears that fertilizer prices in the current cycle have peaked. Analysts see full-year profit falling in 2013 to $20.58, as a result.

Michael Cox, an analyst at Piper Jaffray, is more bullish than the consensus, with an Overweight rating and a profit target of $22.72 for 2013. Natural-gas prices have stayed lower than expected, and the agricultural cycle "tends to be a long one," he says.

Wilson declined to comment on the direction of commodity prices or on the company's earnings. But he noted that fertilizer demand typically grows by 2% to 3% per year, spurred by population growth and greater demand for more protein-rich diets. Corn is a key animal feed, and corn production requires fertilizer. Wilson notes the ratio of corn inventory to use is "historically low," and says it will take "many years of strong production to get that number up to where it has been."

CF sells for eight times this year's expected earnings of $23.70 a share.

This year, comparisons will be tough for the company, which sells cigarettes and tobacco products outside the U.S. But analysts still see earnings growing 9%, to $5.29 a share. In general, Philip Morris aims to boost annual volume by 1%, and revenue by 4% to 6% on a constant-currency basis. The company aims to have operating income improve by 6% to 8% a year, leading to earnings-per-share growth of 10% to 12%, says CEO Louis Camilleri.

Philip Morris has a stable of strong brands, the largest of which is Marlboro, which kicks in about 33% of cigarette volume per year. Other brands include Merit, Parliament, Virginia Slims, L&M, Chesterfield, Bond Street, and Lark. "We have seven of the top 15 brands in the world," Camilleri says.

The company is growing at double-digit rates in emerging markets, but first-quarter operating income, excluding the impact of currency, rose only 5% in the European Union. Asia accounted for 40% of operating income in the period; the EU, 30%, and Eastern Europe, the Middle East and Africa, 23%. "Asia has been very much a growth driver for us," says Camilleri.

And that's despite the fact that Philip Morris International doesn't sell cigarettes in China, where the market is controlled by a state-run company.

Tobacco stocks used to trade at a discount to the broader market due to the threat of litigation. Now international cigarette makers trade at a premium, while those with U.S. litigation risk have lower multiples. Philip Morris shares trade for 17 times this year's expected earnings of $5.29 a share, compared with 14.5 times for Altria and 13 times for the S&P 500.

Qualcomm

Qualcomm made a bet on its technology that has paid off in spades. Every 3G and 4G smartphone in the world has a chip sold by the San Diego company, or a chip using technology licensed from it. Last year, Qualcomm sold 483 million chips, up from 99 million in 2003.

While the market for traditional cellphones is maturing, the smartphone market is growing at a furious pace. In the first quarter, smartphone shipments climbed 41% on an annualized basis, to 145 million units, according to Strategy Analytics. Global smartphone shipments are set to rise by 35% for the full year, to 44% of the total cell-phone market, according to IHS.

Qualcomm's revenue jumped 36% in the fiscal year ended September, to $15 billion. About two-thirds of sales came from chips that the company sells, and the other third reflected royalties. But because royalties are highly profitable, they contributed about two-thirds of earnings.

Qualcomm recently reported profit that beat estimates, but management provided disappointing guidance for the June quarter. Qualcomm outsources the production of its chips and is having difficulty meeting demand.

Insufficient supply could plague the company for the next quarter or so, but Wall Street's fiscal 2012 consensus earnings estimate hasn't budged from $3.76 a share, which would reflect an 18% gain from the prior year. The company has told the Street to expect earnings of $3.61 to $3.76 a share. Qualcomm aims to deliver double-digit revenue and profit growth through 2015, CEO Paul Jacobs said in an e-mail to Barron's.

Qualcomm trades for $61, or 16 times expected earnings. Exclude the company's $14.75 a share in net cash and investments, and the price/earnings multiple falls to 12.5.

Betting that the future lies in smart devices beyond the cellphone, Qualcomm purchased Atheros Communications last year for $3.1 billion. Atheros' technology will help it expand into tablets and home-electronics devices. Qualcomm sees a world in which its chips are added to all sorts of devices to enable communication. "We have the opportunity to deliver a unique set of technologies for the expanding Internet of everything," wrote Jacobs.

Intel

Intel finds itself just two spots behind Qualcomm in the Barron's 500. The positioning is ironic, considering that each company is in the other's sights. Intel would like to make more chips for mobile devices, while Qualcomm would like to invade the market for computer chips.

Intel CEO Paul Otellini has said he would be disappointed if his company isn't a major player in the smartphone business in a few years. The company has ramped up the development timeline for its low-power line of microprocessors, dubbed Atom. "We decided to accelerate the pace at which we bring that leading-edge performance to the chips that are going into the most demanding applications for mobile," Otellini recently told Barrons.com.

That said, it was the tech giant's traditional business -- making chips for computers, netbooks, and servers -- that landed it near the top of the Barron's 500. Revenue jumped 24% last year, to $54 billion; operating income rose 18%, to $18.4 billion, and earnings per share jumped 25%, to $2.53.

"I don't think last year's performance was about the snapback from the recession," Otellini contended. "It was really for us about enterprise demand rebounding. The consumer still hasn't fully recovered. It has really been about emerging markets, where income levels are rising. Brazil is now the third-largest market in the world for PCs."

Intel has continued to pull ahead of competitors in the PC market. It has put more graphics on processors, and the average selling price has gone up, says Richard Whittington, a former semiconductor analyst who owns the stock and now covers the defense industry for Drexel Hamilton. He's hopeful that Intel will successfully reduce the power consumption of its chips to make them attractive to manufacturers of portable devices. And he believes that consumers will want their portable devices to have access to Microsoft Office products via Intel's chips.

Intel is also becoming a manufacturer for hire. Netronome announced in April that it will use Intel Custom Foundry services to produce its network processors. Some have speculated that Intel might even produce processors for Apple.

Intel's modest price/earnings ratio of 12 suggests that investors are somewhat skeptical of its new ventures. A 3% dividend yield could force some to reconsider.

MetLife

Few financial companies have landed near the top of the Barron's 500 in recent years, but insurer MetLife cracked the top 10 this year, moving up to No. 9 from No. 124. Its monster advance owes in part to the $16.3 billion acquisition of American Life Insurance Co. (Alico) from
American International GroupAIG 0.6035113386978785%American International Group Inc.U.S.: NYSEUSD55.01
0.330.6035113386978785%
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75044802821.178
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(AIG) in November 2010.

The deal vastly expanded MetLife's international reach, placing the insurer in markets growing faster than the U.S. "Alico gave MetLife an opportunity to transform itself…into a truly global insurance powerhouse with operations in nearly 50 countries," CEO Steve Kandarian wrote in an e-mail to Barron's.

Even so, MetLife's shares, at $34, seem cheap. They are trading for just 6.5 times this year's expected earnings, although earnings are likely to grow 8% over the next year.

One issue weighing on MetLife is today's low interest rates, which limit what the company's investment portfolio can earn. "Investors should know that we have positioned our company to weather a protracted low-interest-rate environment," Kandarian wrote. "We started purchasing interest-rate floors and other hedges against low interest rates in 2004, when the 10-year Treasury was trading above 4%. Our interest-rate protection doesn't just last for a few years, but beyond 2020."

MetLife flunked the Federal Reserve's Comprehensive Capital Analysis and Review test, or "stress test," this year. The Fed mandates that minimum risk-based capital should be 8% of total assets, and estimated that MetLife's would be 6%. Flunking the test has precluded the company from increasing dividends or buying back shares.

Kandarian has since decided to sell the MetLife Bank unit, which he says "represented just 2%" of the company's operating earnings. He added that "we didn't believe it was appropriate for the overwhelming majority of our business to be governed by regulations written for banks."

Nigel Daily, a Morgan Stanley analyst with an Overweight rating and a $46 price target on MetLife, believes the company will relinquish its bank charter around July and proceed with stock buybacks in the second half. Now might be a good time to get ahead of the action.